AFCA Determination 800295

Key Takeaways

AFCA upholds a complaint against an Insurer who relied on an outdated medical definition to reject a trauma claim.

In doing so, AFCA has reinforced that good industry practice requires Insurers to continue to assess trauma claims against medical definitions that reflect current medical practice.

Brief Facts

The Complainant held trauma cover with the Insurer.

The original policy stated that a benefit is paid where the insured is diagnosed with one of a number of conditions, including cancer. The policy excluded ‘all tumours which are historically described as pre-malignant or showing the malignant changes of ‘carcinoma in situ’...’(a type of breast cancer).

In 2011, the policy was upgraded. The above exclusion remained, however the Complainant’s cover was extended to include ‘carcinoma in situ’ if it resulted directly in the removal of the entire breast where such procedure is specifically performed to arrest the spread of malignancy and considered the appropriate and necessary treatment.

In 2019, the Insurer issued a new policy with upgrades that did not apply to the Complainant’s cover. The 2019 policy definition paid a full benefit for carcinoma in situ of the breast if an insured had breast conserving surgery and adjuvant therapy (such as radiotherapy) to specifically address the spread of malignance where it is considered appropriate and necessary treatment.

In 2020, the Complainant had surgery for ductal carcinoma in situ and in 2021 she underwent radiotherapy. Removal of the breast was not required as part of her treatment.

Following treatment, the Complainant made a claim on her trauma policy. The Insurer rejected the claim on the basis that her policy (which contained the 2011 cancer definition), specifically excluded the type of cancer suffered by the Complainant – that is, carcinoma in situ which did not result in the removal of the entire breast. The Complainant argued that the claim should be paid because under the upgraded terms of the Insurer’s 2019 policy, a benefit would have been paid for her condition.

The Complainant lodged a complaint with AFCA seeking payment of the trauma benefit.

Determination

AFCA found that the medical definition relied on by the Insurer in making the decision to decline the claim was outdated. In addition, AFCA found that relying on a definition based on outdated medical practice was not consistent with good industry practice nor did it meet a customer’s reasonable expectations.

Not surprisingly, AFCA drew comparisons between the facts of this complaint and the Royal Commission’s examination of outdated heart attack definitions which lead to the introduction of clause 3.2 of the LICOP (which requires that medical definitions be updated where necessary to ensure that they remain current).

In reaching its decision, AFCA noted that a distinction should be drawn between different types of policy upgrades. It observed that there is a difference between on the one hand, an upgrade which provides an insured with a greater benefit or broader scope of cover and on the other hand, an upgrade which simply replaces an outdated medical definition.

AFCA stated that whilst an Insurer is not required to pass on to an insured the benefits of policy upgrades which provide greater benefits or broader cover (unless the terms of the policy require it), an Insurer is required to apply an upgrade which replaces outdated medical definitions. That is because, according to AFCA, an upgrade of that nature simply brings an insured’s existing cover into line with current accepted medical definitions and practices. In other words, it does not change the level or scope of the existing cover but rather, is intended to maintain the existing cover.

For these reasons, AFCA determined that the Insurer should have applied the 2019 policy definition upgrade to the Complainant’s policy in order to maintain her level of cover. Had it done so, the Complainant would have been entitled to payment of the full trauma benefit under the policy.

The Insurer was ordered to pay the full trauma benefit plus interest calculated in accordance with s57 of the Insurance Contracts Act.

Implications

Based on one of the major findings of the Royal Commission, AFCA continues to hold Insurers to account for relying on outdated medical definitions in trauma policies.

The determination highlights the continued importance of assessing trauma claims against updated medical definitions in order to bring an insured’s cover in line with current medical practice and treatment.

AFCA has again shown that it will have no hesitation in finding that a more up to date medical definition applies to a claim, notwithstanding that the definition may not be part of an insured’s cover.